Call for Gillard government to rethink munitions strategy

Defence Materiel Minister Jason Clare has declared retaining “high usage’’ munitions manufacture in Australia to be a “priority industry capability’’ which means the two plants are eligible for extra government assistance.
Photo: Louise Kennerley

The
Gillard
government should consider dumping munitions manufacturing because it can no longer be considered vital to national security or offer value for money for taxpayers, a leading defence thinktank says.

Australian Strategic Policy Institute budget analyst Mark Thomson said on Wednesday that it was hard to argue the making of “dumb munitions’’ in Australia was any longer vital to the country’s national ­security.

“If you want to safeguard Australia’s national security, then you stockpile guided and smart munitions, not bullets and explosives,’’ Dr Thomson said. He was commenting after South Korean firm Poongsan pulled out of a joint bid with US systems giant Raytheon to manage two Australian government-owned ­munitions plants from 2015

Dr Thomson was critical of the government-owned munitions plants at Benalla in northern Victoria and Mulwala in southern NSW being declared vital to national security under the government’s Priority Industry Capability program, which makes them eligible for special assistance.

“The Priority Industry Capability program is as much about retaining defence projects considered vital to the political interest and jobs as it is about national security,’’ he added.

“It is the government’s prerogative to determine what defence capabilities it considers important to retain in Australia . . . [but] let’s be frank, what we are talking about here is preserving employment in regional Australia at a cost premium."

Poongsan cited “sovereign risk’’ in investing in defence in Australia as its reason for pulling out of a competitive bid to manage the two plants.

Its decision follows the controversial axing of a $225 million heavy gun purchase involving fellow Korean company Samsung Techwin.

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Five consortia are interested in the Australian munitions project, which is worth up to $1 billion with a preferred tenderer expected to be named before the end of 2013.

The project involves taking over management and production at the Benalla ammunition factory in northern Victoria and explosives plant in southern NSW. The two plants employ up to 800 people.

An Australian National Audit Office report released in 2010 was scathing of the long-term contract to manage the two facilities with Thales Australia (now run by subsidiary Australian Ammunition) warning the government was “paying a premium for the retention of an indigenous manufacturing capability’’ given the plant was producing just 13 lines of ammunition out of the 830 in use by the Australian Defence Force.

And it noted more modern ammunition was increasingly being imported from overseas.

But a spokesman for Thales Australia said it had invested in a new production line, formed alliances to pursue more exports and delivered millions of dollars in savings to the Commonwealth under a defence efficiency drive since the 2010 audit.

Defence Materiel Minister Jason Clare has declared retaining “high usage’’ munitions manufacture in Australia to be a “priority industry capability’’, which means the two plants are eligible for extra government assistance.

The rationale for keeping the two plants open has been ensuring Australian troops are not caught short of ammunition if a conflict happens in a hurry and allied suppliers fail.

A defence spokesperson said “successive Australian governments have maintained a long-term commitment to the manufacture of munitions in Australia’’ with $370 million being invested in updating the Mulwala propellant plant.

The spokesperson said the “capability is important as it reduces strategic risks through providing guaranteed supply sources for some high-usage munitions’’.